Multi level marketing is banned in India

It came to the front pages in the recent times with arrest of Amway India's CEO a few weeks back. In the articles related to the news it was often mentioned that all "pyramid schemes" and most of multi level marketing is banned in India. I just searched for a few articles which are below. We should be very careful.

Such MLM schemes may not be banned in countries abroad, but it is banned in India. Who knows after a year or two something happens and all comes down.

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Govt asks states to ban multi-level marketing schemes

Shruti Srivastava, New Delhi, Dec 03 2012

The Centre has proposed state governments to ban all companies running schemes which offer monetary benefits to subscriber for enrolling members to their scheme.

In effect, all companies, firm or business associations in any form or individuals will not be allowed to run a scheme "with a compensation plan in which the subscribers would compulsorily have to enroll certain minimum number of subscribers to become entitled to monetary benefits or link the monetary benefits or commission to the subscribers".

After the case of alleged fraud committed by Singapore-based multi-level marketing (MLM) portal SpeakAsia Online, the government started the process of reining in such companies which offered impossibly high returns in a very short span or offered huge benefits for enrolling more subscribers.

An inter-ministerial committee comprising the Reserve Bank of India, and ministries of consumer affairs, corporate affairs, finance and law, was formed to look into the matter. It suggested setting up of a central agency to oversee MLM schemes and also proposed to filter and block websites above a certain number of subscribers to curb such schemes. 

- See more at: http://www.indianexpress.com/news/govt-asks-states-to-ban-multilevel-marketing-schemes/1039514/#sthash.KRQrEWrX.dpuf

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Here, a guy tries to analyze the situation and in a very balanced manner, he puts his points. From what I read, the scheme should be illegal. His points:

How to run a legal MLM scheme in India and what is illegal Muti-Level Marketing?
Ramanuj, Jul 25, 2011

Secondly, the Act bans schemes developed to make quick and easy money. Any MLM scheme, which allures potential marketers/distributors through promise of quick money making is likely to be illegal. However, there is a qualification too – the viability of the scheme depends on more and more people subscribing to the scheme. If this is not the case, chances are good that the scheme may survive a legal scrutiny and be allowed. I am yet to hear of such a scheme in India though.


What the law seeks to ban in India is the type of schemes that rely on “robbing paul to pay peter” in the language of Supreme Court in the Kuriachan Chako case. According to this case, viability this kind of scheme depends on finding new Pauls regularly. When new subscribers can not be found, the scheme will fail. Courts do not care if everyone is getting paid at the moment – they will gaze into the future and ask a theoretical question: “can this scheme be run perpetually, even if there is no one else to be recruited as all the people have already joined the scheme?” If the answer is negative, its an illegal money circulation scheme.

In fact some lawyers advised these MLM promoters to not connect returns with further enrollment –  and the promoters tried to get around this  - like Kuriachan tried to disconnect enrolment with returns. However, the Supreme Court still held that since the promised payment could be made only if new subscribers were taken, the scheme was illegal.

Full article: http://madlaw.in/how-to-run-a-legal-mlm-scheme-in-india-and-what-is-illegal-muti-level-marketing/